–Someday this debt crisis is gonna end and we can get back to talking about good businesses and how much to pay for them. That would be a refreshing change, wouldn’t it? Instead of sifting through the lies and distortions of central bankers, we could talk about cash flows and balance sheets.
–And instead of trying to protect against the predations of political parasites who are in our face every day with some new stupid rule or law, we could focus on living free and building wealth (in all its glorious forms). But the morons and economic vandals are still at it. So let’s have a look at the Greek revolt, the Chinese shale gas rush, and Australia as an energy producer.
–What Greek revolt, you say? Well, the indentured servitude of Greece to Europe is about to begin, if the Greek people don’t set the country on fire first to prevent it. Greek Prime Minister George Papandreou survived a confidence vote in the Greek Parliament earlier this morning. Now he has to take the austerity deal demanded by the European Central Bank and the International Monetary Fund and firmly cram it down the throat of the Greek people.
–The really bold leadership decision would be to tell the Europeans to go stick it…and simply default. That’s what’s going to happen eventually anyway. But in the meantime, the Money Power is slowly but surely destroying national sovereignty. The question now is will the Greek government go along with it…and will the Greek people allow their government to sell them into debt slavery?
–Not that the Greeks are innocent martyrs in all this. Someone there ran up a huge debt. Someone has to pay it off, or deal with the consequences. The consequences could be that Greece gets kicked out of the Euro. In order to save the Euro, it may be necessary to cut Greece loose.
–But where does it stop after that? Italy? Portugal? Ireland? Spain?
–The markets are back to complete indifference, at least for a day or two. But before you get too comfortable, just remember that every time someone with an official title in a sharp suit stepped in front of microphone in late 2008, they usually said that everyone was well capitalised, that sub-prime loans were contained, and that the situation would improve.
–Most of them were incompetent. A few of them were lying. And all of them were wrong. And none of them understood that the financial system has more unproductive debt that it can cope with.
–The people in the streets understand that. But the question is: are they going to do anything about it? Can they? Are things going to “explode”?
–Most of the time things don’t explode. Life just plods on and we muddle through. And if there’s one good thing about a prolonged financial crisis, it’s that while everyone is watching the fire burn, you can find yourself some interesting investment opportunities looking elsewhere.
–The Chinese are looking, by the way. The China National Offshore Oil Corporation (CNOOC) announced Monday in the U.S. that it would spend US$2.2 billion for one-third of Chesapeake Energy’s assets in South Texas. That equates to a one-third stake in 600,000 acres of one of the hottest oil and gas regions in the world.
–You might recognise Chesapeake. In February, BHP Billiton agreed to pay $4.75 billion in cash for Chesapeake’s Fayetteville shale assets in the U.S. state of Arkansas. The shale boom in the U.S. has created a land-rush mentality. And it’s fundamentally changed the world’s energy market. How?
–It makes the U.S. a lot less dependent on imported oil from the Middle East. The U.S. is fortunate to have regional neighbours like Canada, Mexico, and Venezuela. On top of U.S. oil production, there is plenty of regional oil America can import. As a result of the shale gas boom (and the slower economy) U.S .oil imports have declined.
–The U.S. shale boom has already transformed global energy markets. In a new report we’ve written for readers of Australian Wealth Gameplan, we show how this has happened. And what it means. The Chinese and the Saudis figure prominently.
–But Australia plays a key role too, although probably not in the way some people are thinking. For example, an article in yesterday’s Australian Financial Review reports Aussie juniors are trying to get into the U.S. shale gas boom. They don’t have the deep pockets of a BHP or CNOOC. But there is lots of prospective acreage. And a junior that builds up acreage can make itself a succulent takeover target.
–That’s one way to try and speculate on the shale boom. But keep this in mind. Chinese companies got involved in the Saudi gas industry seven years ago on terms that were immensely favourable to the Saudis. The Chinese were not worried about making money. They wanted to “upskill” their oil and gas industry by learning from the Saudis.
–China has shale gas too and lots of it. The U.S. Energy Information Administration released a report in April profiling shale gas prospects in 14 countries outside the U.S. China was high on the list. And China is eager to lessen its dependence on coal. It wouldn’t surprise us at all if CNOOC—a state-owned company—is on mission in the Eagle Ford to learn how to produce gas from shale.
–The trouble is, it will be awhile before China commercialises shale gas production. Other markets are in a much better position to do it. And one of those markets is Australia, where there is an awful lot of shale gas too, according to the EIA report. Stay tuned.
Markets and Money